Indian Oil, BPCL, HPCL Stop Taking Margin Hit On Petrol, Diesel Sales

State-run oil marketing companies (OMCs) Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) have stopped absorbing the government-mandated cut of ₹1 per litre on sales of petrol and diesel following an over 36% fall in global crude oil prices in the last three months, said two senior OMC officials, requesting anonymity.

This means that Indian Oil, BPCL and HPCL will not be passing on all the benefits of the drop in crude oil prices to consumers at the petrol pump. On 4 October, the centre had directed the OMCs to absorb a petrol and diesel price cut of ₹1 a litre, which according to estimates, would have led to a collective hit of ₹9,000 crore on margins over two quarters.

“We are no longer absorbing the mandated price cut. There is no need when crude oil prices have cooled off,” said one of the officials mentioned above. Retail prices of petrol and diesel in India are linked to their prices in global markets and not that of crude. That results in the demand-supply situation of finished products in global markets having some effect on domestic retail prices of auto fuel.

Despite that, crude oil, which accounts for about 90% of the cost of these refinery products, is the biggest determinant of the retail price of fuel. On 4 October 2018, crude prices were at $83.58 a barrel. It was hovering at $53.32 a barrel on 2 January.